Bankruptcy

Setting up the Bondholders

By Stephen Lubben

GM?s CEO said today that the company would not alter the terms of its exchange offer, and that the company?s fate rested with the bondholders.

But GM can?t be that naïve ? exchange offers rarely work, especially with a high threshold like 90%, and there is almost no chance it would work in this instance. The GM bonds are widely held by both retail and sophisticated investors, and GM is offering them almost nothing in exchange for their bonds. Many holders will rationally think they have nothing to loose by examining their bankruptcy option.  At the very least they might pick up the 1% currently being offered to GM shareholders.

But what if this is another attempt to set up the ?bad guy? that forced an "unncessary" bankruptcy?

Hedge funds that bought both Chrysler and GM debt are going to fee a bit picked on, I suspect.  Of course, this time the "professor that cried CDS" might be right, so the story is going to be a bit muddy in both directions.

Full post as published by Credit Slips on May 12, 2009 (boomark / email).